Palo Alto Networks: End Market Growth Will Lead to Upside

In the past year, cyber security specialist Palo Alto Networks (PANW) shares have shot up over 82% in the past year. This is not surprising as the company has been growing at a solid pace, and the company’s impressive rise will continue in the future if its recent results are any indication.

Growing impressively

For instance, last quarter, Palo Alto reported robust growth of 59% in revenue, driven by higher spending from the government and companies for protecting themselves from more cyber attacks.

The company’s results included 56% growth in product revenue and 65% growth in service revenue.

Further, its gross profit grew 62% to $209 million as compared to $129 million for the same quarter in 2014. On the other hand, total operating expenses rose to $244 million from $155 million in the same quarter last year, driven by a 21% increase in research and development expenses, 52% increase in sales and marketing, and 87% increase in sales and marketing expenses.

Due to its strong investment in product development, Palo Alto’s operating loss for the quarter had widened to $35 million from $25 million last year. This is not surprising as Palo Alto is investing aggressively to gain more traction in the end market.

However, investors should not ignore the fact that Palo Alto has been able to grow its cash flow despite higher expenses. In fact, its cash flow from operations for the quarter was $350.3 million as compared to $111.3 million for the fourth quarter of last year. Going forward, it is likely that Palo Alto will continue getting better as the company is making smart moves to tap growth in the end market.

Growth opportunities

The increasing use of mobile, social media and the internet are the key factors leading to an increase in cyber threats. Therefore, the increasing cyber threats and the strictness of government’s rules and regulations are forcing companies to adopt stringent cyber security practices. As a result of the increasing focus on cyber threats, the cyber security market by 2020 is expected grow to $170 billion from $75 billion in 2015.

Therefore, the growth of this market will lead to a bright future for Palo Alto and huge opportunities to grow and expand.

PA-7080, a new addition to Palo Alto’s next-generation firewalls family is now available for sale, and this will protect telecommunications service providers and large enterprises from cyber attacks. Palo Alto, along with Tanium, will form a strategic alliance that will help the company transform the accuracy, speed and effectiveness that will detect, prevent, and respond to cyber threats attacking the company.

Conclusion

Palo Alto Network posted outstanding results for the fourth quarter. The quarter included a strong increase in revenue along with remarkable rise in the company’s gross profit and net income. The quarter also saw an expansion in diluted earnings per share. Furthermore, the growing cyber attacks and the strict norms adopted by governments will lead organizations to adopt cyber security practices.